Thursday, July 26, 2012

War and Debt: Glencore, Vitol, Cargill, Dreyfus Cash In

From Reuters:

The Vitol oil
trader dressed in heels picking her way through the armed rebels and
pick-up trucks of post-war Tripoli had eyes only for the lucrative oil
contracts up for grabs from Libya's new revolutionary government.

Her landmark deal for Vitol to
export Libyan crude heralded the return of commodity houses to their
swashbuckling roots, trading oil and grain with countries troubled by
war and debt.

After years of
backroom work focused on the dry business of building out storage,
shipping and logistics operations, a small club of trading houses has
jumped at the chance to land some old-fashioned big-profit deals.

They
have had plenty of choice over the past year: war or unrest in Libya,
Egypt, Syria, Yemen and South Sudan, sanctions on Iran, Greece on the brink of default.

"Trading
houses are not shying away from places with high risk profiles if these
profiles also lead to higher profit margins. It's about risk versus
reward," said Ton Schurink at Geneva-based Commodity Finance Trading
Advisory Services.

Vitol, Glencore, Gunvor and Trafigura in oil
and Cargill, Louis Dreyfus and Bunge in grains have demonstrated that,
for some at least, the security, credit and reputational risks are worth
taking if the rewards are big enough.

Traders can operate in risky places because their business model is fundamentally different from the likes of BP or ExxonMobil.

Oil
majors tend to be more wary of upsetting their home governments or
shareholders and are bound to stricter rules when it comes to daily
operations.

And because trading
companies are mostly private, there is nobody to second-guess their
internal decisions and more room for a star trader to take a bold
initiative.

"Can you imagine
someone at Exxon saying I'm just going to override that rule and send my
tanker into pirate waters because it's a good trade? In a trading
house, you don't have to listen to the model as it's privately owned,"
said an industry source working for a European oil firm.

Estimates from rivals suggest a trader who dares to sell grains to sanctions-straitened Iran could pocket $2 million profit per Panamax-size cargo as opposed to $200,000 if the cargo is sold to a low-risk buyer.

Premiums
of at least $1.25 million were charged per diesel fuel cargo heading to
unrest-prone Egypt in June this year, just days before the presidential
election.

"Everyone has the same
commodity to sell so you have to take risks to distinguish yourself and
then manage them," said Robert Petritsch, Chief Financial Officer of
Swiss-based Quadra Commodities.

SAVING GREECEGreece's credit rating is now worse than many African nations.Perhaps
not surprising then that many firms are cautious about supplying the
partly state-owned Greek refiner Hellenic Petroleum with crude oil.

"If
a country defaults, then it's a different ball game entirely. Credit
dries up. So costs go up," said a trader with a Swiss-based trading
house.

The prospect of default hasn't scared off Glencore and Vitol.

The
two traders are estimated to have given Greece at least 300 million
euros in open credit financing - meaning it does not need guarantees
from banks to buy crude. Both firms declined to comment....MUCH MORE